Sustaining Production Chains through Financial Linkages
AbstractThe technological constraints on sustaining production chains have been discussed extensively by development economists, but the role of financial linkages has received less attention. In a model of recursive moral hazard for a manufacturing supply chain, we show that the structure of interlocking receivables and payables serve as the glue for the production chain that sustains complex manufacturing output. The inefficiency associated with recursive moral hazard can be mitigated through optimal delays in payments along the chain. However, efficiency requires large stocks of working capital, and invoice prices are high due to implicit amortization costs of inter-firm credit.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 3 (May)
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- Philipp Harms & Jaewon Jung & Oliver Lorz, 2014.
"Offshoring and Sequential Production Chains: A General-Equilibrium Analysis,"
14.01, Swiss National Bank, Study Center Gerzensee.
- Philipp Harms & Jaewon Jung & Oliver Lorz, 2014. "Offshoring and Sequential Production Chains: A General-Equilibrium Analysis," MAGKS Papers on Economics 201402, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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